Bitcoin Investigated around The World for Potential Criminal Activity

Can digital currency bring forth a new age in economics? Are the nations of the world ready or willing to surrender control of the monetary system or tolerate an unregulated digital economy? Bitcoin, the newest digital currency, is about to answer these question and raise many more.

Introduced in 2009, Bitcoin is a new form of currency that exists in electronic form. According to Bitcoin.org, “Bitcoin is the first decentralized digital currency.” It is unregulated, open source, peer-to-peer currency that is not owned by any one person or entity and anyone can use it.

The currency is not subject to the standards of the modern central banking system. It can be transferred over the Internet without using any banks. Unlike paper currency backed by the world’s central banks, there are little or no fees for using or transferring Bitcoin and it cannot be manipulated by artificial means.

Bitcoins are created using an application known as a Bitcoin Miner. Anyone with enough computing power can mine or create Bitcoins. The software is “open source,” meaning that anyone can see the source code. Bitcoin production is regulated by the network so that the amount of Bitcoins produced is always limited and predictable. Bitcoins are stored in digital wallets and encrypted. No one knows who owns the coins or how many someone may have.

According to the first assessment by Bank of America Merrill Lynch, Bitcoin has become a “major means for e-commerce and may emerge as a serious competitor for money transfer providers.” But, both China and the U.S. have begun to severely restrict speculation in the digital currency.

The People’s Bank of China (PBOC) has outlawed third party companies from dealing with Bitcoin exchanges. As a result, the value of Bitcoins plummeted. According to David Woo, Head of Currencies Research for Bank of America Merrill Lynch, “The easiest way to understand this latest development is that China is adopting the same tougher regulatory stance as the U.S.”

However, China and the U.S. are not the only nations leery of the Bitcoin. India’s Central Bank has also issued warnings against the digital currency. The warnings outlined the dangers of using Bitcoin and caused India’s largest Bitcoin exchange, BuySellBitCo.in, to shut down. Indian authorities also raided the home of the BuySellBitCo.in operator. According to Indian authorities, the exchange is being investigated for possibly transferring money across borders illegally.

Officials in France and the European Union have also issued warnings regarding Bitcoins and the potential for speculation and money laundering.

In the U.S., no government agency has declared Bitcoin a currency or commodity. However, the U.S. Financial Crimes Enforcement Network (FinCEN), a Treasury Department bureau, requires that administrators and exchangers of digital currencies register with FinCEN as money service businesses. These businesses are required to comply with the Bank Secrecy Act of 1970 and the Patriot Act of 2001, which require stringent policies to prevent money laundering.

In 2012, the FBI launched the Virtual Currency Emerging Threats Working Group. The interagency task force is studying the threats of Bitcoin and methods law enforcement agencies can use to determine such threats.

Fraud, money laundering, and other criminal activites are considered among the primary threats from digital currency. Some believe that Bitcoin is only useful to criminals. E.J. Fagan of Global Financial Integrity, a group that studies illicit financial flows, argues that Bitcoin allows criminals to conduct business without going through intermediaries. These criminal activities includes human sex trafficking, drug smuggling, and poaching.

Law enforcement can still trace transactions of Bitcoins, but that is about to become even more difficult. According to the New York Times, a team of researchers at Johns Hopkins University are working an even more anonymous digital currency known as Zerocoin. Fagan claims that Zerocoin will allow criminals to launder massive amounts of cash. However, Matthew D. Green, who heads up the team, claims otherwise.

In an editorial, Green claims his team is only trying to repair a flaw in the Bitcoin technology. This flaw deprives users of Bitcoin of the same privacy users of credit cards and cash enjoy.

Currently, the U.S. is one of the largest holders of Bitcoin. The FBI seized the Bitcoin wallet of Ross Ulbrict, who allegedly operated the website Silk Road. It is alleged that Ulbrict, going under the name Dread Pirate Roberts, operated the website as an illicit marketplace for drugs deals, money laundering, and other illegal activities.

As a result of the investigation, the FBI controls a wallet containing 144,000 Bitcoins worth almost $100 million. Another site containing Silk Road Bitcoins was also seized containing 30,000 Bitcoins worth an additional $20 million. The largest Bitcoin wallet belongs to Bitcoin inventor Satoshi Nakamoto, who supposedly holds close to one million Bitcoins. The problem is no one knows who he is or even if he is a person.

According to Cameron Keng of Forbes.com, Bitcoin is not anonymous and is taxable. Unless you can prove that your Bitcoins are in the U.S., they can be taxed under the Foreign Bank Account Recording rules or other offshore accounting regulations. According to Keng, Bitcoins are taxable “whenever a taxable event occurs.”

Users of Bitcoin should be extremely cautious when attempting to hide assets as Bitcoins. The IRS can audit any person or company whose spending outstrips their income. However, the rules for Bitcoin miners are far less vague. According to Keng, Bitcoin is considered a manufactured product and miners who sell their Bitcoins will be taxed on the profits made from the Bitcoin product.

Regardless of many unanswered questions, it looks like Bitcoin is here to stay. A growing number of companies now accept the digital currency, including Overstock.com. The company has decided to accept the digital currency for both business and philosophical reasons. Overstock CEO Patrick M. Byrne believes that the market of Bitcoin holders has reached the point where accepting Bitcoins makes good business sense. His philosophical reason is rooted in his belief in limited government. Overstock.com intends to convert Bitcoins into dollars.

About the Author

Born in Richmond Virginia Tom Huskerson is a military veteran who settled in California after his discharge. He attended Santa Barbara City College where he began his writing career as a campus reporter. He worked as an intern news reporter for the Santa Barbara News-Press writing feature stories before moving on to San Francisco.
At San Francisco State University Tom studied broadcast communications and began to focus on the Internet. He completed his graduate thesis on Internet advertising. Tom was the first student to ever focus on the Internet as a graduate student at San Francisco State University.
After graduation he went to work for Zona Research in California’s Silicone Valley. As a research associate Tom supported senior analyst writing on the latest developments in the Internet industry. During the dot com boom Tom worked for several web businesses as a market researcher and analyst.
As a writer and researcher Tom has authored various technical works including a training program for Charles Schwab security. Other projects included professional presentations on workplace violence and hiring security contractors.
Tom has focused on writing both fiction and non-fiction works,poetry, blogging and speech writing. He has published two books of short stories and completed two novels. Tom is the owner of Scribe of Life Literature( www.scribeoflife.com) and EbonyCandle.com
Tom recently completed a Cyber Security studies program and graduated Summa Cum Laude from Northern Virginia Community College. Tom recently signed a three book deal with Relentlessly Creative Publishing and is working on a series of booklets focusing on online safety and security for the consumer.
He lives in Alexandria, VA

why wouldn't banks, and US government ban merchants form accepting bitcoin? if they stand to lose out on profiting from it, wouldn't they come up with excuses to ban it? a little protest by the die hards but the price will plummet and now rebound i'd think... i've been following it for 2 years and am perplexed that the banksters haven't lobbied for the cronies in government to stop it. If bitcoin even gets near its real potential, many citizens will transfer their dollars in for BTC, whether 5% or 50% of their income... that single point could give justification for the regulators to ban exchanges and merchants, then all the speculators will bail out on their bitcoins and the whole thing falls... why wouldn't this happen? honestly?

it's intriguing how futuristic Bitcoin appears. Currency that is backed by a computer's processing power? Uncertainty is definitely warranted, but the fact that it's doing so well despite how new it is, should be turning heads.

@nowitsmine8 Potentially they can ban it but rest of the world will be using it. At least some countries. All the innovation, jobs will go outside. I'm sure US don't want this in current financial mess.